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The oil bubble bursts

The oil bubble bursts
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First Published: Wed, Sep 03 2008. 12 31 AM IST
The sharp decline in crude oil prices is good news for India.
India’s trade deficit has grown to a worrisome level because of a rise in the oil import bill. And government finances, too, are under strain because of fuel subsidies. So, the recent drop in global crude oil prices should give the economy some breathing space on both fronts.
But let there not be any premature celebrations. Most analysts say that the underlying cause of lower oil prices is weak demand, as less fuel is burnt in a slowing global economy. Assuming that is indeed the case, then the drop in crude oil prices is further proof that global growth is slipping.
There could now be more pressure on the government to cut domestic fuel prices and to lean on the Reserve Bank of India to cut interest rates. Both moves are uncalled for—as yet. But if oil prices hover around $100 a barrel for the rest of the year, then the case for lower interest rates, at least, will become stronger, as concerns about growth become more compelling than worries about high inflation.
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First Published: Wed, Sep 03 2008. 12 31 AM IST